The producers of
the surprise hit film Napoleon Dynamite are not entitled to the
additional royalties they are claiming from the distributor, the Court of
Appeal for this district ruled yesterday.

Div. Two, in an
unpublished opinion by Presiding Justice Roger Boren, said Napoleon Pictures
Limited failed to prove the existence of an alleged oral agreement by Fox
Searchlight Pictures, Inc. to pay the producers 31.66 percent of video sales.

“The claimed
undocumented oral understanding contradicts the parties’ written agreement,
which states that rentals have a high royalty rate while sales royaltiesare at 10 percent,” Boren wrote.

Napoleon
Pictures sued Fox in August 2011 claiming it was owed at least $10 million in
allegedly underreported royalties and improper revenue deductions from the 2004
comedy starring Jon Heder. The film, which cost less than $500,000 to make,
grossed more than $44.5 million domestically in theaters and $139 million in
DVD sales.

Fox Searchlight
acquired rights to the film at the 2004 Sundance Film Festival, where it premiered
and became the most-sought after film by distributors. Entertainment lawyer
John Sloss, a veteran of more than 400 independent film deals, represented
Napoleon in negotiations with Fox vice-president Joseph DeMarco.

A term sheet
signed three days after the premiere gave Napoleon $4.75 million for the film,
plus a 50 percent gross profits participation rate. A fully executed agreement
was not signed until May 2004, three months after Sundance.

An exhibit
attached to the agreement provided for a “sell-through royalty” of 10 percent
of moneys derived from sales of videos, and a “high price sales/rental
royalty,” of 31.66 percent, on money received from video cassette
distribution to wholesale dealers, which are intended for rental by the public.
Jeremy Coon, who produced the film with an initial investment from his family
and signed the agreement on behalf of Napoleon Pictures, later claimed that he
did not see the exhibit until two months after the agreement was signed.

After a
years-long audit of film revenues, which Napoleon demanded in 2006, Napoleon
sued for breach of contract, promissory estoppel, negligent misrepresentation,
reformation, and an accounting.

Among its claims
was that DeMarco—who died three years before the complaint was filed—represented
that there would be an overall net royalty of about 25 percent of profits from
home video sales. Sloss said that was consistent with other deals he had done
with DeMarco, while Fox was to claim that it traditionally took a harder line
on royalties when, as in this case, it had paid top dollar for the film.

The parties
stipulated to the appointment of retired Los Angeles Superior Court Judge
Patricia L. Collins as referee to try the case. Collins largely sided with Fox,
finding in an 80-page report that Napoleon was only entitled to $150,000, based
on some accounting irregularities unrelated to the video sales.

Collins found
for Fox on the royalty issue, based on the language of the exhibit. She
rejected Sloss’ testimony, finding it was “not only contrary to the terms of an
expressly integrated agreement, but is not memorialized or confirmed in a
single piece of paper” or e-mail. It “strains reason,” she said, to
believe that an aggressive, experienced lawyer like Sloss would not document a
purported oral agreement of that magnitude.

Boren, writing
yesterday for the Court of Appeal, said the referee’s findings were supported
by substantial evidence.

The exhibit that
Coon claimed he never said, the jurist noted, was part of a standard agreement
that Sloss and his colleagues had a duty to familiarize themselves with. Even
if they hadn’t received it, he added, they had to be aware of it once Fox’s
in-house counsel referred to it in correspondence that began before the
contract was executed, and could have easily obtained a copy, Boren said.

“A contracting
party is bound by terms contained in an unattached, but easily available,
Exhibit A,” the jurist wrote.

Boren went on to
agree with the referee that the contract was unambiguous, rejecting Napoleon’s
claim that parol evidence of the oral understanding between Sloss and DeMarco
was controlling.